What is ‘modern slavery’ and worker ‘exploitation’?
‘Modern slavery’ is a term which covers a broad range of controlling and coercive behaviour. The consultation paper adopts a definition which covers the legal concepts of forced labour, debt bondage, forced marriage, slavery and slavery like practices, and human trafficking. Worker ‘exploitation’ covers ‘non-minor’ breaches of New Zealand employment standards.
Modern slavery was identified as a key priority by New Zealand regulators last year, with both the Human Rights Commission and MBIE commenting on a perceived gap in New Zealand’s approach to dealing with modern slavery in international supply chains. MBIE has commented that tackling modern slavery will take a “collective global effort, with a particular focus on global supply chains at the national level.”
How will the regime apply?
The legislation, as currently proposed, would capture all organisations: companies, sole traders, partnerships, state sector organisations, local government, charities, trusts, and incorporated societies.
MBIE is proposing a graduated set of responsibilities under which larger entities will be subject to more onerous obligations. Responsibilities would be graduated according to annual revenue, and split across three tiers as follows:
- Small – annual revenue of less than NZ$20m a year;
- Medium – annual revenue of NZ$20m to NZ$50m; and
- Large – annual revenue of more than NZ$50m.
All organisations will be required to:
- Take ‘reasonable and proportionate’ action if the entity becomes aware of modern slavery in its operations and domestic and international supply chains, or worker exploitation in its New Zealand operations.
- Undertake ‘due diligence’ to prevent, mitigate and remedy modern slavery and worker exploitation by New Zealand entities where they are the parent or holding company or have significant contractual control.
‘Medium’ and ‘Large’ organisations would additionally need to disclose the steps they are taking to address modern slavery in their operations and supply chains, and worker exploitation in their New Zealand operations (which would be subject to mandatory reporting criteria).
‘Large’ organisations would also need to undertake due diligence to prevent, mitigate and remedy modern slavery in their global operations and supply chains and also worker exploitation in their domestic operations and supply chains.
The proposed due diligence duty goes a step further than equivalent frameworks developed in Australia and the UK (which do not expressly require positive due diligence steps). New Zealand entities which also operate in the UK or Australia should take note of this additional obligation, given the burdensome implications of having to implement and manage differing compliance programmes across different jurisdictions.
What measures will be required in practice?
Various immediate questions arise from the consultation paper which will require careful clarification in the resulting draft legislation. In particular:
- What is ‘reasonable and proportionate’ action where modern slavery is identified?
The consultation paper does not propose a bright line test for this requirement. Rather, it states that what actions are reasonable and proportionate will depend on a wide range of factors. This includes the entity’s size and resources, the nature of the control and influence the entity has over the supplier, industry practice, and the harm that could result if the action was not taken. The paper notes that action could include reporting issues to the authorities, working with suppliers to redress the harm, or changing suppliers. We expect that businesses in New Zealand will seek detailed and specific clarification of the required steps in the bill, or in regulatory guidance.
- What will ‘due diligence’ look like?
The paper states that there is a ‘wide range’ of potential measures that could be implemented to prevent and mitigate any identified risks as part of meeting due diligence responsibilities. The examples provided include: regularly surveying suppliers, commissioning third-party audits of suppliers’ compliance with human rights and employment standards, and establishing hotlines or whistleblowing channels for reporting of concerns. Again, we expect that New Zealand businesses will look for clarity on what specific measures are likely to satisfy the duty. That is particularly because the paper invites comment on whether an entity’s governing body (e.g. the directors of a company) should be personally liable for any of the obligations.
- What are the consequences of breach?
The paper notes that effective enforcement, including penalties, is necessary to ensure that disclosures and due diligence are undertaken. The regime would include certain specific offences for disclosure or due diligence failures. MBIE, which is likely to be the agency responsible for the legislation, would have various enforcement tools including infringement notices, enforceable undertakings, and the publication of both good and bad practice (i.e. ‘naming and shaming’). Penalties are yet to be determined but are expected to be consistent with other major financial services and Health and Safety legislation (likely ranging between NZ$600,000 and NZ$5 million).
- Will the obligations be consistent with overseas regimes?
Many New Zealand businesses may already be subject to contractual obligations relating to modern slavery as a result of contracting with parties who are subject to existing regimes overseas (such as disclosure and reporting obligations in the UK and Australia), and therefore will be keen to ensure that the New Zealand framework is consistent with those overseas requirements. The same concern will apply for New Zealand businesses with international operations, where overseas modern slavery regimes will apply directly.
The proposals represent an opportunity to enhance New Zealand’s international reputation as a country that supports human rights, and enjoys high levels of transparency across the economy. However, given the extensive reach of the proposed changes, and the significant consequences of breach (including potential personal liability for directors) as well as reputational risk, this is an important time for businesses to carefully consider the impact of the reforms on their operations. We expect many organisations will have an interest in filing submissions before the deadline of 7 June 2022.
If you would like further details on the proposed changes, or assistance in making submissions, please get in touch with the authors or your usual Bell Gully adviser.